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Time to stop demonizing public employee’s, their pay, and pensions!

Last week, the OC Weeklyâ€™s R. Scott Moxley wrote about the roaring debate over public employee pensions in “Death and Taxes.”Â While I appreciate his highlighting the contributions of Dan Chmielewski and myselfÂ to the debate with Steven Greenhut and Supervisor John Moorlach, I do have to take issue with the way he presented some of my comments, including the attribution of some statements out of context.Â

In his commentary Moxley writes:Â

â€œThe battle is sure to remain intense because the LiberalOCÂ blogâ€™s Chris Prevatt (who is also a county union official) isnâ€™t willing to concede that government pensions is a topic for public debate. He even says that specific retiree benefitsâ€”like the ones causing so much outrageâ€”should be secret, and he has blasted inquisitive reporters.â€Â

First, to claim that I feel that government pensions are not a topic for public debate is not accurate. I believe that the public does have a role in participating in debate over public employee pensions. That is accomplished through the election of officials to manage our government. The public is entitled to know what benefits have been negotiated, and in Orange County the voters even approved a county ballot initiative that requires a vote of the public to increases public employee pension benefits. In fact, the Orange County Employeeâ€™s Association (OCEA) spent no time or effort opposing that initiative.Â In a July 14th OC Register Guest CommentaryÂ OCEA General Manager Nick Berardino pointed out that OCEA has saved the taxpayers millions:

â€œThis past year OCEA and the county negotiated a truly innovative option that provides employees the ability to select (and pay more for) a straight defined-benefit plan or, in the alternative, select a lesser defined-benefit plan combined with a defined-contribution plan. In both cases, OCEA-represented employees will continue to pay their entire employee contribution and a portion of the employer contribution.â€

Moxley went on to attribute the following quote from me incorrectly as though it was a justification for not revealing actual pension payouts.Â

â€œIt is not the job of individual taxpayers to evaluate the performance of public employees.â€Â

Moxleyâ€™s misapplication of my comment resulted in the following from Greenhut:Â

â€œHow arrogant to want to further shut down public records,â€ responds Greenhut, who canâ€™t hide his contempt that union leaders want â€œa shield from accountability.â€Â

From his view, â€œTaxpayers have every right and duty to be concerned. Actually, Prevattâ€™s â€˜Itâ€™s none of your business; we know bestâ€™ attitude epitomizes the core thesis of my book. The public servants have become the publicâ€™s masters. Itâ€™s time for the public to remind the government-employee class that it is supposed to work for us.â€Â

My objection was over where the line between the public right to know crosses over the right to some level of privacy. Pensions are not as claimed in the OC Register investigation I was commenting on, â€œpaid by the taxpayer.â€ Pensions are paid by the employer, in this case public agencies, and the employees. Even if the employer picks up 100% of the employee share of retirement contributions, it is the employeeâ€™s contribution and was negotiated by those employees as part of their regular compensation when they were employees. The only interest the public has is inÂ what compensation, including benefits, an active employee is being paid. Unfortunately, the state courts have ruled differently, so that â€œpointâ€ is moot.Â

The resulting revelation of pension benefits for County retirees has proven what I and union officials have been saying all along. The rank and file employees do not receive excessive or bloated pension benefits. In fact, senior executives are the people getting bloated pension payouts. These managers contribute nothing to the employee share of their pension benefits, and they get the highest payouts. And even with the excessive retirement payouts for managers factored in, the average annual payout for General Members in the entire OCERS system was $30,108 in 2009 (Fig. 1).Â

Figure 1

My comment, takenÂ in context, was related to the overall debate about how much of a role the general public has in the details ofÂ in the administration of government functions. My point wasÂ simply that a municipality cannot be effectively or efficiently managed directly by each resident individually. In the case of the County of Orange, we elect a Board of Supervisors and task them with the responsibility to hire and supervise managers to run the nuts and bolts of county government functions. That is what I meant when I wrote â€œIt is not the job of individual taxpayers to evaluate the performance of public employees.â€Â

Far from objecting to accountability, union leaders have been on the forefront of calling for management accountability. What union officials and I object to is the abuse of public information requests for the purpose of distorting the image of public employees. Given the way Greenhut and Moorlach have distorted facts, I think there is a valid cause for concern.Â

Moxley also quotes Greenhut saying:Â

â€œThe public increasingly understands the level of plundering that has gone on, as public employees have used their union power to gain an unsustainable level of pay and especially benefits,â€ he says. â€œPeople are starting to understand that this is an issue of fairness. Itâ€™s not fair to create a society in which those who are supposed to serve the public get to live much better than the rest of us.â€Â

Greenhut here is using the excessive salaries of government executive managers to portray ALL public employees as being overpaid and living better than the â€œrest of us.â€ I am not sure when Steven Greenhut became a member of the down-trodden working class, but I am pretty sure he â€œearnsâ€ significantly more than the average county worker while sitting on his tail pontificating about public employees living high on the hog. I am having a difficult time figuring out who he is referring to when he uses the phrase â€œrest of us.â€ County workers do earn more than the average salaries of the general population. But when those salaries are compared to salaries of similar private sectorÂ professions, public employees â€”Â for the most partÂ â€” earn less than their private sector counterparts.Â

As far as public employees getting better pension benefits compared to people retiring on Social Security alone; yes they get more. Public employees contribute about double the amount to their pension plans than private sector workers pay into Social Security andÂ draw about double the benefit of those receiving Social Security. It is disingenuous to characterize all public employee pensions as excessive. It simply isnâ€™t the case.Â

Moxley quotes Orange County 2nd District Supervisor John Moorlach from his July 28thguest editorial in the Orange County Register.Â

â€œThe voters have seen public sector greed (thank you, city of Bell), and they have had enough,â€ wrote Moorlach, who says itâ€™s time for a voter referendum against â€œRolls-Royceâ€ public pension plans.Â

Again, we have another example of how hypocrites like MoorlachÂ â€” who will benefit from the same county pension plan IÂ will while also taking home an additional 8% of his salaryÂ in a 401(k) style defined contribution planÂ â€” tailor their rhetoric to raise public ire against public employees. He, like all county executives and managers, doesnâ€™t pay any of theÂ employee normal costs towards his pension benefits, and doesn’t pay for the 401(k) styleÂ pension programÂ (Managers and elected officialsÂ do contribute a small percentage to cover the pension enhancements of 2005).Â

Unfunded Pension Liabilities Do Not Mean InsolvencyÂ

Moorlach and Greenhut incorrectly portray â€œunfunded pension liabilitiesâ€ as some looming catastrophe hanging over our heads ready to crush our government services into oblivion as well as taxpayers into financial ruin. That is simply not the case.Â

FACT: In the 1950s through 1970s, pension funding levels were the same or lower than todayâ€™s levels, without rampant municipal bond defaults or bankruptcies;

FACT: The Pew Center on States, authors of a definitive study on pension funding and a major critic of unfunded liabilities, points out that average state pension funding was at 84% in 2008, higher than the average in the 1970s, and a â€œrelatively positive outcome, because most experts advise at least an 80 percent funding levelâ€;

FACT: Even states with some of the weakest pension funding rates, like New Jersey, had enough assets at the end of 2009 to cover their pension costs by 10 times or more.

Unfunded pension liabilities have existed before (Fig. 2), and they will exist in the future. In a cyclical manner, unfunded pension liabilities will rise and fall with economic conditions. Greenhut and Moorlach would have us believe that a fully funded pension plan is required for fiscal solvency and financial stability. This is not the case asÂ public employeeÂ pension funding ratios have grown and declined over time. Funding levels were as low as 50% in the 1970s, 80% in the 1980s, and only reached 100% in the mid- 1990s after stock market returns averaged 28% per year.Â

Figure 2

Unfunded liabilities are not, as Steven Greenhut would have us believe, like credit card debt. Credit Card debt is based upon unsecured debt; public employee pensions are not. Pension debt is more akin to a home mortgage. You have a liability secured by some cash and a projected market value of an asset if sold. You do not have a responsibility to pay that debt in full unless you sell the home (cash out).Â

While lower than average pension funding levels are not equivalent to insolvency, they are certainlyÂ important and should be addressed to prevent further erosion of pension reserves. Full funding is an ideal goal, but not required to maintain stable pension reserves. OCERSâ€™ independent actuary, Segal, Inc. performed an actuarial valuation as of December 31, 2009 and determined that OCERSâ€™ funding ratio of actuarial assets to the actuarial accrued liability is 68.77%, which decreased from the prior yearâ€™s funded status of 71.34%. (See Letter of Transmittal, page 3 of CAFR).Â

Public employees are not opposed to responsible pension reform. Public employees and their union leaders in Orange County have worked with the County to, create options including hybrid pension plans, increase the retirement eligibility age for new employees, and require pension contributions from employees who previously paid nothing towards the employee portion of their pension contributions.Â

The Orange County Employeeâ€™s Association, representingÂ the vast majority of employees in the County retirement system,Â has taken the lead in offering innovative solutions that help relieve future county costs while protecting existing benefits. Government workers are willing to be part of the solution, but they are not the only participants in this process. Management needs to step up to the plate and start paying a portion of their pension costs. If management and public safety employees paid their full share of the employee share of their pension contribution, or even a portion of it, we would be on the path to full funding of our pension liabilities. From my perspective, that of a county worker, everyone needs to pay their share of the costs.

(1) The California Public Employeesâ€™ Retirement System, CalPERS, administers nearly all public pensions.
(2) Fiscal 2007 was a very good year for CalPERS investments; the peak of the real-estate derivatives bubble produced 19.1% winnings on the funds often-risky investments.
(3) In 2008 the real-estate derivatives bubble popped. CalPERS told its members in the early fall on 2008 that it lost $70+ billion so far that year, more than 1/4 of its $260+ billion investment fund.
(4) CalPERS also told their members not to worry; their benefits were securely protected by law and contract.
(5) CalPERS also warned city, county, and state governments that their annual pension contributions could increase by nearly 1/3, (the amount of its $70+ billion, 2008 losses), which means that cities, counties, and state governments will have to make additional cuts in their budgets. CalPERS â€œduesâ€ generally lags about two years behind investment performance.
(6) The beleaguered CalPERS board, under fire for making large payments to middlemen for bad investment advice, has authorized a big percentage increase of plan holdings that can be invested in private equity funds.
(7) Private equity funds are an increased risk since they resulted in bigger losses than publicly sold stocks during the 2008-09 crash. (The crash is still on-going, No Glass-Steagall reform in the Dodd-Frank banking â€œreformâ€ act).
(8) The CalPERS losses will increases taxes AND budget cuts. Every economic class will suffer. With diminished public services the poor will suffer the most, some until death.

“Most Americans believe that federal employees and other government employees are paid more than comparable private-sector employees,” said pollster Scott Rasmussen. “When we’ve asked about 10 percent pay cuts for public employees, people have overwhelmingly supported that.”

Written by Supervisor John M.W. Moorlach, Orange County
August 10, 2010

On Tuesday, PublicCEO.com ran a blog from the LiberalOC on the recent OC Weekly article found here. I enjoy a good debate and this commentary provides for one.

Allow me to make something very clear: I am an accountant and I am dealing with public employee pension issues that are impacting the fiscal viability of municipalities around this state and nation – I am not demonizing people, I’m just pointing out public sector compensation arrangements that are out of balance and do not “compare” with private sector norms. Read More.